Domestic Defence Manufacturers: Scouting for the Global Partners

Under the leadership of Prime Minister Narendra Modi, the National Democratic Alliance (NDA) completed three years recently. In this backdrop, the Union Minister of Defence finalised the broad contours of a policy aimed at engaging the Indian private players in the manufacturing of high-tech defence equipment in India. As the official statement declares, the policy is aimed at developing the defence industrial eco-system in India through the involvement of both the major Indian corporates as well as the MSME sector.

According to the brief, the policy was developed through extensive stakeholder consultations with Indian industry. It envisages the establishment of long-term strategic partnerships with qualified Indian industry majors through a transparent and competitive process wherein the Indian industry partners would tie up with global OEMs to seek technology transfers and manufacturing know-how to set up domestic manufacturing infrastructure and supply chains.

The statement claims that the policy will give a boost to the Defence sector under the rubric of the Make in India. The policy is expected to be implemented in a few selected segments, to begin with, namely, fighter aircraft, submarines, and armoured vehicles. In future, additional segments may be added. Appropriate institutional mechanisms will be set in place to implement the policy.

One can trace increasing recognition of indigenous manufacturing of defence equipment in 2011 when the Union Government introduced the Defence Production Policy, 2011. India has the third largest military in the world and is the sixth biggest defence spender. According to the official estimation, India imports 60 per cent of defence related requirements. It is a staggering figure which can squeeze the finance of any emerging nation. With a set of policy pronouncements, the Union Government is trying to lag the gap. In this backdrop, there is a need to shed light on recent development in the defence sector.

Inaugurating the Aero India-2015 Air Show in Bengaluru, Prime Minister Narendra Modi said, “Our defence industry in private sector is still small. But, it already employs thousands of people. This is despite the fact that nearly 60 percent of our defence equipment continues to be imported.”

Prime Minister further added, “And, we are spending tens of billions of dollars on acquisitions from abroad. There are studies that show that even a 20 to 25 percent reduction in imports could directly create an additional 100,000 to 120,000 highly skilled jobs in India. If we could raise the percentage of domestic procurement from 40 percent to 70 percent in the next five years, we would double the output in our defence industry”.

Collaborations for Domestic Defence Manufacturing Prowess:Indian Government allowed 49 per cent foreign direct investment in the defence sector. In this backdrop, collaborations with the domestic players and the global players are rife. With help from strategic partnerships, they are building new defence capabilities. In many cases, it is a win-win situation. Many of Indian players are big corporates from the manufacturing sector. They have impressive past. If India is willing to become a leading player in the defence space, such strategic collaborations should be percolated in the MSME Sector.

Collaborators Equipment

Tata & Boeing Manufacturing Aero structure & Unmanned Aerial Vehicles

Tata & Bell Helicopter Defence Modernisation

Reliance & Boeing Naval Reconnaissance Aircraft

Reliance & Dassault Aviation Combat Aircraft

Bharat Forge & Rafael Infantry Combat

Hinduja Brothers & L&T Artillery Guns

In February 2017, the Department of Industrial Policy and Promotion and the Department of Defence Promotion published the Achievements Report under the Make in India. In the report, they emphasised on the following determinants: Policy Incentives & Investment, Skill development, Ease of Doing Business, Special Focus on MSMEs and Research & Development. All these factors are very relevant for a strong defence sector.

With changing geopolitical equations, India needs a robust defence manufacturing sector, especially in the MSME Sector. It is evident that the global defence space is dominated by a couple of players from the developed countries and trade is highly lopsided. They grab huge money from countries like India. Encouraged by the favourable policy decisions, Indian defence manufacturing space is witnessing a change and its credit goes to the political leadership at the national level. With help from the various stakeholders, India is trying to shift the contours of the monopoly in the defence space.